Federal Reserve official Kevin Warsh expressed optimism that artificial intelligence (AI) will ultimately make nations capable of effectively leveraging it more productive and prosperous. However, he warned that the transition toward this outcome will likely be highly volatile, and the short-term impact on employment remains difficult to predict.
Warsh shared these views during a discussion with International Monetary Fund (IMF) Managing Director Kristalina Georgieva as part of the IMF-World Bank Annual Meetings in Bangkok on Friday. He noted that the development of AI is set to be one of the most significant economic shifts of the coming decade.
He emphasized that while there is reason for optimism regarding AI, one must remain vigilant about the consequences of the transition. In the long term, the technology has the potential to boost productivity and wealth; in the short term, however, it could trigger major changes in work patterns, investment, and economic structure.
Regarding monetary policy, Warsh stated that the global economy is generally performing in line with the Federal Reserve’s expectations since the central bank raised interest rates in September. He declined, however, to provide any hints regarding the decision for the upcoming October 27–28 meeting, asserting that he did not wish to preempt the outcome of the policy deliberations.
Last month, the Fed raised interest rates to a range of 3.75%–4.00%—the first such increase since 2023. Following Warsh’s remarks, the Fed will enter a "blackout" period—a suspension of public communications—ahead of the late-October policy meeting, leaving the market to rely increasingly on economic data to gauge the future direction of interest rates.
The market currently assigns a roughly 72.3% probability that the Fed will hold interest rates steady at the October meeting, while a majority of market participants still anticipate a potential 25-basis-point hike in December. The combination of uncertainty surrounding interest rates and long-term optimism regarding AI has kept investors focused on the potential impacts on the dollar, bonds, technology stocks, and other risk assets. (srh)